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Local experts bring short-sale deals into the mainstream

January 28, 2013 @ 8:31 am (Updated: 5:23 am - 1/29/13 )

The first connotation of a home listed as a short sale was an unwanted, big-bargain problem house that was either a neighborhood eyesore abandoned by an investor or an over-hyped mansion that a high-tech wannabe had to flee because he suddenly discovered his stock options were worthless.

Instead of going through a lengthy and costly foreclosure, lenders offered to sell the places - hopefully quickly - for an amount less than what was owed on the place. In the banker's mind, why would the bank hold the property for six months, pay a manager to maintain and repair it, pay current and back taxes, homeowner association fees and salesperson commission's only to go to the foreclosure sale knowing that nobody would be willing to bid the amount remaining on the mortgage?

Candidly, there were no real experts - including lenders and real estate salespersons - in dispersing short-sale properties because the process was relatively new. After a 20-year run-up in housing prices, few homes were ever worth less than the owner paid for them, and very few loans went into default because runaway inflation floated all boats.

Appreciation was consistent and expected and made up for losses brought by paying too much, job loss, divorce or serious illness. When a home went up in value, it was easy to tap its new equity and pull it out via a home equity loan or line of credit.

In the past four years, the number of distressed properties has risen significantly. Lenders were slow to adapt and take a cut on price. More and more home shoppers shunned short sales altogether, preferring a more reliable sales process to a reduction in price. Getting all parties to agree to a short-sale price was problematic, compounded by the fact that some lenders were known to change their minds when more bidders surfaced.

Eventually, in a move to save time and money on the foreclosure process, lenders dedicated more personnel to negotiating settlements for short-sale buyers. At the same time, more real estate agents began specializing in short sales, not surprising given the number of short sale properties on the horizon.

"You wouldn't go to a bankruptcy lawyer to get help with a personal injury claim," said Wes Jones of HomeHelper Consultants, a Bellevue-based company specializing in short sales and aligned with Keller Williams Realty. "The same way you wouldn't go to your general doctor if you needed help with your heart. The same is true in real estate. So many people end up picking an agent who is a generalist or someone to whom they feel a personal obligation over what is the right business decision for them."

According to Jones and other short-sale specialists, one of the biggest mistakes buyers make is that they still expect huge discounts - similar to foreclosure auction prices - even though inventories are extremely low in many Puget Sound neighborhoods.

"The banks aren't just writing this debt off," Jones said. "They do short sales for one reason, and one reason only: The process mitigates loss over a foreclosure. They will recover more of a loan via a short sale than they would by proceeding with the foreclosure process and all the costs incurred by doing so."

Lenders do send out a representative to set a benchmark price via a mini appraisal, called a broker's price opinion, or BPO. If a buyer's short-sale offer is not in line with the BPO, the lender most likely will reject the offer and proceed to foreclosure.

Other mistakes consumers make in a short sale:

  • Unrealistic conditions on the offer. Short sales take time, and only giving a listing agent or negotiator 30 days will not help.
  • Failing to "pre-qualify" the listing agent and or short-sale negotiator. What is their track record? A good short sale-agent should have completed 60-100 short sales by now. If they have not, they may lack the true experience to get it done in this market.
  • Expecting a bank to do repairs or pay for repairs.
  • Sellers not paying certain bills. Water and sewer need to be paid off by closing. Past due HOA dues must also be paid, and they can turn into liens or judgments.
  • Not returning paperwork in a timely manner. Files get closed or denied because the seller has not provided updated financial information.

If you are a short-sale seller or buyer, make sure you choose someone with experience to represent you in the process. Your deal might not be the best place to break in a hard-working, well-intentioned agent.

Tom Kelly's new novel "Cold Crossover" is now available in print at bookstores everywhere and in both print and Ebook form on Amazon.com. Follow real estate agent and former basketball coach Ernie Creekmore as investigates the disappearance of his star player on a late-night ferry boat. Check out the national reviews and put "Cold Crossover" on your list.

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Comments (7)


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  • Aaron in Sammamish wrote...
    HomeHelper ads on KIRO -- uhg.
    January 28, 2013 12:59 pm
    I cringe when I hear these ads on KIRO, as they seem to advocate the idea that being short on your home is a reason to sell short ("I found out I was short, so HowShortAmI.com helped me do a short sale! What a relief! WOOO-HOOOO!!!"). Well, it isn't. That's a terrible, terrible reason to sell short. The reality of a short sale is that it screws your credit over almost as badly as a foreclosure. Why? Well, it's simple: You agreed to pay the bank x dollars, and now you've changed your mind. Doesn't matter why, but you're a bad risk now, and your credit score will show that. Why should somebody loan you money if you're just going to walk away from your obligation? Short sales have their place (a tiny one), but they're not to be used lightly by people with buyers remorse, and they screw over prospective buyers as well. Why is applying for a loan today like getting audited by the IRS? Because of people like this (among others, of course).
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  • WAmovesRight wrote...
    @ Aaron - way oversimplified comment
    January 29, 2013 7:41 am
    First, Short sales are not "as bad" as a foreclosure. It reveals that responsibly worked through several steps to mitigate damage to the property. If you've ever gone through one you'd know there's is quite a bit for the seller to do.

    Second, While it does tank your credit - temporarily - your score will quite quickly recover provided you pay ALL of your other debts on time. In other words, as long as your track record shows you make good credit decisions lenders will look at your short sale as a "bump in the road" after 1-2 years (depending on credit score prior to the short sale. The truth is, most of the credit damage is actually due to the months of non-payment of your mortgage leading up to the short sale.

    Short sales are not for everyone and they are not always the best option to "get out from under" your house. You should always consult an attorney who specializes in real estate/debt/bankruptcy/ etc.

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  • SickofSeattleite wrote...
    if the banks were not so greedy they could get it all back and more
    January 29, 2013 5:20 am
    by doing a principle reduction. problem solved...but that would be to simple....
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  • WAmovesRight wrote...
    Agreed
    January 29, 2013 7:42 am
    If the banks would have been willing to offer the existing owners a refinanced loan with the same terms being accepted on their short sales, many of these would not have happened. Also, the banks would have saved a lot of money in fees by doing so...
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  • equipment1 wrote...
    @sickofseattle
    January 30, 2013 6:55 pm
    it would be easy for banks to do as you suggest, but what about the hundreds of thousands of homeowners that pay their mortgage on time,and are struggling to do so.... shouldn't they get their principle reduced as well ?
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  • Wesley J wrote...
    Principle Reduction
    February 3, 2013 2:33 pm
    Priciple Reduction will never be done at a high level for that reason. If you do it for one homeowner, you have to do it for them all, and that just doesn't make sense. The only case of principle reduction that I have seen is on BOA's 2nd loans and this was in part of their agreement regarding the 25 Billion Dollar Settlement. Banks simply will not budge until they are hurt financially. They are making their own business decisions.
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  • Realitycheck wrote...
    Sick of Seattle is 100% right, but
    February 3, 2013 4:21 pm
    he forgets on very important part that allows banks to do what they do to us.....the government.... Since the government is helping banks with the losses left and right on top of insurance they have it quite often is a better financial decision to foreclose and sell for less then a modification would've netted. Isn't it great that we the people (government) help those crooks defraud ourselves. These crooks must really be laughing all the way to the bank. Wake up and close your bank accounts if it is with a major bank and go to a local small bank or better yet a non-profit credit union. No bank will ever see any of my money...ever. Because they will do it to us again, just give it time.
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